NAFTA, tariffs, and other trade deficit 'solutions'NAFTA, tariffs, and other trade deficit 'solutions'Luis TorresTorres
automobile assembly line
Arguments to solve trade deficits by opposing free trade agreements like NAFTA or imposing steel and aluminum tariffs forget the underlying macroeconomic forces of why countries like the U.S. have trade deficits.

Notes from any “principle of macroeconomics” course show you that when a country has a trade deficit the amount of savings in that country is less than the amount of investment. To finance the difference, a country uses foreign savings (i.e., foreign capital). This means if you want to decrease a trade deficit, you would have to increase savings or decrease investment.

For the U.S. to increase savings, consumption would have to decrease, which would probably cause economic growth to slow in the short run. Think about it. We would postpone current consumption for future consumption. That is what we do when we save. But increasing savings in a country that likes to consume is no easy task.

What if we try decreasing investment instead? Companies would not purchase machinery and equipment, affecting short-run and long-run economic growth.

Let’s say we eliminate NAFTA and impose tariffs on steel and aluminum imports. Would that lead to an increase in U.S. savings? Probably not because the amount of savings depends on incomes and savings rates. Eliminating NAFTA and imposing tariffs would not have a lasting effect on the trade deficit because the underlying cause of the trade deficit is investing more than saving.
Happy Burst-Day, Housing Bubble!Happy Burst-Day, Housing Bubble!Luis B. Torres and Wesley MillerTorres


Ten years ago, the United States was in the midst of a subprime-mortgage and ensuing housing crisis. Recessionary pains from the worst downturn since the Great Depression reverberated throughout the country, but a multitude of factors shielded most of the Texas housing market.

In terms of housing finance, Texas' relatively conservative lending standards allayed somewhat the number of foreclosures and strengthened underlying market fundamentals. The state was relatively slow to allow home-equity lending. Home-equity lending increased in national popularity in the late 1980s and 1990s. Texas, however, first allowed home-equity lending in 1997 and restricted the total of all mortgage debt (not just the home equity loan) from exceeding 80 percent of the home's fair-market value. In contrast, many of the most afflicted states placed no such restrictions.

Texas' relatively abundant supply of land combined with liberal zoning and building restrictions kept supply in balance with demand. The laissez-faire emphasis to urban development deterred market distortions and artificial price appreciation that propagated elsewhere. Texas home prices rose steadily in the early 2000s but trailed the ballooning national average. A prolonged statewide recession between 2001 and 2003 further hindered Texas home price appreciation prior to the 2008–09 housing crisis.

'Pop' Goes the Bubble

When the housing bubble burst in late 2007, Texas prices had less distance to fall and benefitted from stronger market fundamentals. The state recovered before most of the nation, thanks to the energy sector boom in 2011. Rapid economic growth continued through 2014 until the price of oil collapsed amid global crude surpluses. Unlike the 1985 oil bust, the state's economic diversity cushioned the slowdown, thereby allowing the housing market to maintain its steady march.

As the business-cycle expansion advances, it is useful to consider the progress made, as well as the problems developed since the housing crisis. The post-recession performance of the Texas housing market is further considered in the following analysis.

​Home Sales Plummet and Rebound

Texas housing sales began falling in January 2007, crashing 27 percent before the implementation of the “Making Homes Affordable" mortgage modification program in 2009. The stimulus artificially lifted sales for seven months before reverting to its downward trend for an additional year. After a 32 percent aggregate decline, sales hit bottom in December 2010.

The 2011 shale oil boom sparked Texas' economic revival, propelling home sales for 18 months. Rapid growth continued until the Federal Reserve's tapering policy spiked mortgage rates in summer 2013. Following the market adjustment, sales embarked on their current long-run expansion, displaying impressive resilience despite affordable housing shortages and falling oil prices in 2015 and 2016. However, housing sales per capita remained 7 percent below pre-recessionary levels as the Texas homeownership rate hit an all-time low in 2017.

Homeownership Falls, Foreclosures Rise

The Great Recession coincided with a national decline in the rate of homeownership. However, this secular downturn stemmed more from an overall aging population and obstacles hindering first-time homebuyers (e.g. student debt, strict lending requirements, and a shortage of entry-priced homes).

Texas homeownership varied widely during the recession but continued the overall downward trend. This trend continued during the recovery phase of the business cycle, sinking below 62 percent in 2014—the lowest since 1999—as more young people moved to the state and became renters.

The number of foreclosures peaked in first quarter 2010 but were 2.5 percent lower than the national rate. The Texas rate remained elevated until 2012 and now sits around 1980s levels of less than 0.6 percent.

Diminished Purchasing Power​

Job losses and wage reductions during the recession drove up foreclosures as more Texans struggled to stay afloat. After a year-and-a-half contraction, the business cycle turned and accelerated during the fracking boom. Texas income per capita fully recovered by the end of 2011 and shifted into second gear in 2014. However, an oil price collapse late in the year shocked income growth, and today's prolonged period of income stagnation began.

Housing prices flattened for three years during the recession, an amazing fact given the 21 percent national contraction. In the recovery phase, income growth outpaced home prices, adding to the state's affordability advantages. Surprisingly, price appreciation kept pace despite the 2015-16 economic stumble, which diminished much of Texans' purchasing power. The divergence of incomes and home prices presents real challenges to future growth in Texas' housing markets.

Housing Stock Rocked

An unprecedentedly low housing supply contributed to rapid home price appreciation. Prior to the recession, the Texas housing market was stable at around five to six months of inventory. Inventories peaked before the economic boom in 2011. By 2014, the supply of active listings was below four months. The months of inventory for homes priced under $300,000 averaged just 3.1 months. This price range accounts for 70 percent of homes sold through Multiple Listing Services and highlights the severity of today's shortages.

Homebuilders have responded to market imbalances but output remains far below its pre-crisis peak in per-capita terms. Rising land, labor, and input costs strain builders' ability to build homes in the most-demanded price range. That said, Texas per-capita permits reached 58 percent of its peak level in 2017, while national permits failed to issue half the pre-crisis amount.

Summary: Unsustainable Divergence

The Texas housing market successfully weathered the Great Recession and the housing bubble burst that tormented regional economies across the nation. In 2011, technological advancements in the energy sector propelled the Texas market forward, but supply-side constraints have prevented a full-scale recovery.

Texas' affordability advantage contracted as inventory shortages elevated home prices, thereby straining stagnant incomes. The divergence between home prices and incomes is unsustainable and will become increasingly problematic if unresolved. Improvements must be made in suppliers' ability to build homes priced between $200,000 and $300,000. On the demand side, the state must continue to foster economic and technological innovation to boost Texans' productivity and incomes. The simultaneous growth of the housing market and the economy remains critical to Texas' overall prosperity.

To view this article with explanatory graphs, click here​

Another good year ahead for Texas, especially for housingAnother good year ahead for Texas, especially for housingJim GainesGaines
2018-02-14T06:00:00ZCenter News


This year will be a really good year for Texas real estate. The momentum has been building for the last year and a half.  After a down year in 2016, Texas began its recovery last year.

Energy is back. Real Estate Center estimates are based on $55-per- barrel oil as the yearly average. We are not anticipating any kind of falloff from that price. Historically you could gauge Texas' overall economic health by just looking at the rig count. However, rig counts have leveled off thanks to technology that reduces the number of new wells needed to produce millions of barrels of oil. Oil production was down in the 1980s and '90s, but when fracking debuted in 2010, production rose significantly, and it continues at a high level.

Texas produces about 40 percent of all U.S. oil. That's a lot for one state when you consider the U.S. total includes Alaska, the Dakotas, and California. If Texas were a country, it would be the world's sixth-largest oil producer. Texas produces roughly the same amount of oil as Canada.

We are estimating Texas gross domestic product for 2018 will be in the neighborhood of 4.1 or 4.2 percent. Some of that, about half a percentage point, will be inflated because of Hurricane Harvey recovery but still reflects strong economic activity.

Population growth continues to be a big factor in Texas growth. In 2016-17, the Census Bureau calculates the state gained around 400,000 new residents. In the last two years, half of the 800,000 gain was from foreign and domestic immigration and half from births outnumbering deaths. California and New York sent us the most people.

Population growth fuels the housing market, which will remain strong. Housing sales will go up another 5 percent in 2018, setting yet another record.

Home prices will increase thanks to an inventory shortage. On average, Texas needs 820 new single-family homes for every 1,000 households created. However, we've been building only about 600 each of the last seven years. Texas is somewhere between 325,000 and 350,000 single-family homes short. We expect prices to increase around 5 percent or more overall.

Multifamily housing is another story. Multifamily housing is fueled by the shortage of single-family housing and by a burgeoning youthful population. Texas is a young state. We've been attracting 20- and 30-somethings, college graduates, and job seekers. Many of those tend to rent.

The single-family home market is tight because it's difficult for builders to build new homes for less than $250,000 to $300,000. That's the entry-level for most first-time buyers. We just can't produce the volume of homes needed in that price range. The situation is further complicated because first-time buyers have the most difficult time getting financing.

Dodd-Frank* curtailed loans to anyone who could not demonstrate an ability to repay. Entry-level buyers generally have lower FICA scores, lack credit history, haven't been in the job market long, and lack the 20 percent down payment. Federal requirements have eased, but there just aren't enough homes to meet demand.

One of the biggest population segments is in its prime home-buying stage of life. Older millennials are in their late 30s. They're married with children; they're looking for homes in both the suburbs and urban centers. They are driving home sales.

Older Americans are aging in place. The over-55 generation hasn't been relocating to the degree predicted. That means they're not selling their homes. They've refinanced their home at 4 percent and have no incentive to sell. In the past, the average home sold every four to seven years. That's now nine to 12 years. This trend has contributed to the low number-of-homes-available-to-sell inventory.

Real estate in all of Texas' major urban areas will do well in 2018. Texas is still the bellwether state for home construction. California is a distant second. Both Houston and Dallas built more houses last year than all but four states. Homebuilding in those cities was just average for what they do over the long term. Moreover, both metros were way below their historical highs set back in 2005-06.

Statewide homebuilding permits will be up about 9 percent this year. Houston permits will be up nearly 14 percent, but some of that will be Harvey rebuilds.

There are two primary speed bumps on the road to new home construction. First, there isn't much developed lot inventory. The cost to develop a lot suitable for homebuilding is high. Labor is the other big hurdle. It's not that we don't have any labor; it's that we don't have enough labor.

Historically, you could get a new stick-built house framed in a week if you had a full crew. Now, a framing crew might be only two or three people, and they could take four weeks to frame the same house. A new home that could be built in four or five months a few years ago now takes eight or nine to complete.

Multifamily construction will likely decrease this year. We've already seen a drop in building permits. The residential construction leading index the Center prepares currently points up, despite multifamily construction holding the total down.

Some Texas markets were becoming overbuilt. Houston was potentially overbuilt until the hurricane. Harvey sent the Houston apartment vacancy rate to zero. Statewide rents will continue to rise. Owners are more likely to offer concessions, like a free month's rent, rather than lower rent.

The bottom line is 2018 will be a good year economically, including the housing market. Another 350,000 to 400,000 Texans will be added. Unemployment will remain low.

Not only will the United States prosper in 2018, so will the whole world. The good news is that when countries do well economically, they demand more oil. More oil sales translate into a bigger, stronger Texas economy.

*Dodd-Frank Wall Street Reform and Consumer Protection Act

Lights. Camera. Welcome mat.Lights. Camera. Welcome mat.David JonesJones, D.

​​​​Photo of California contemporary house

Hundreds of homes have been featured in movies. Some are the subject of the film. Some are just the background. Hooked on Houses compares photographs of the homes as they appeared in the movie and in real life. They have more than 450 television and movie-set homes on their website.

If living in a movie-set home strikes your fancy, there are several on the market. Of course, living in a famous house comes with a price tag to match. Here's a sampling (with links) to a few.

The “Basic Instinct" house in Carmel-by-the-Sea, Calif., is where much of the 1992 thriller with Sharon Stone and Michael Douglas was filmed. Adventurer Steve Fossett owned the contemporary 12,000-square-foot home at one time. It has a two-story domed library, five bedrooms, nine baths, 12 fireplaces, and two kitchens on more than two acres with pools, spa, and grotto. Asking price:  just shy of $17 million.

“The Money Pit" home on Long Island is very different from the infamous home in the 1986 movie starring Tom Hanks and Shelley Long. Originally owned by Olympic gold medalist Eric Ridder, the 14,000-square-foot home has a show-stopping entry with grand staircase and large formal rooms.

After the film crew left, the mansion underwent four years of remodeling. ​​Today, the 23-room home has seven large ensuite bedrooms, including a four-room master suite, and eight fireplaces. It's listed for $5.9 million.

The final scene in Clint Eastwood's “Play Misty for Me" was shot from a cliff-side home in Carmel, Calif. The family that owned the 2,781-square-foot home during filming continued living there more than 30 years. The current owner spent some $2 million renovating the three-bedroom on 1.25 acres of craggy coastline. The asking price is $11.9 million.

A traditional colonial farmhouse in White Plains, N.Y., has a star-studded history. From 1866 to 1912, a nephew of Mary Todd Lincoln owned it. The stately home was featured in the 2001 movie “Unfaithful" starring Richard Gere and Diane Lane. The home features rocking chair porches and a recreation house once used to prepare for international table tennis competitions. Asking price: Almost $2.4 million.

The “Home Alone" house in Winnetka, Ill., is on the market. The 1990 movie brought fame to Macaulay Culkin and the red brick home. Many of the interior scenes in the movie were shot on a sound stage in a high school gymnasium. Apparently, producers were afraid of doing some real damage to the Georgian-style colonial. List price: $2.4 million.

To view 2017's top ten celebrity homes, click here.​

What are the immediate impacts of a shutdown on real estate markets?What are the immediate impacts of a shutdown on real estate markets?Jim GainesGaines
Market Overview
(Editor's note: The government shutdown ended the evening of Monday, Jan. 22.)
We've had government shutdowns before. Our congress has gone through this process of not being able to develop a budget, and that's not new. In the past it generally h​as not lasted very long, and the impacts have been relatively minor. We're only a few days into the current shutdown, and so far the impacts, again, have been very minor. In terms of the real estate market, I see two potential immediate impacts.

One is the shutdown of the Department of Housing and Urban Development (HUD), which would mean that houses currently being financed under the Federal Housing Administration (FHA) programs may find themselves in limbo in terms of being processed. The effect would potentially be the same for homes financed through Veterans Administration (VA) loans. Fannie Mae and Freddie Mac are not affected.​

The other impact would be from any disruption in financial markets, but that should be fairly minor on a day-to-day basis. The Consumer Financial Protection Bureau (CFPB), the Federal Housing Finance Agency (FHFA), and other agencies directly involved in the mortgage market are on hold. But again, that's likely not to have a major influence on day-to-day activity, unless the shutdown continues over a considerable period.​
What should we expect from the tax bill?What should we expect from the tax bill?Luis TorresTorres
Despite an unprecedented period of moderate economic growth in the years after the Great Recession, the average person has fallen further and further behind economically, not feeling the recovery. The recent tax bill passed by the government seeks to create incentives for private firms to invest in capital equipment that would lead to productivity growth and wage gains.

Its authors and supporters believed that the focus should be on corporations to correct the economic wounds the U.S. has inflicted on itself in the absence of tax reform. So what should we expect now?
  • Repatriation flows. The last time there was reform that affected repatriation (conversion of foreign currency into currency of one’s own country) was 2004, and a lot of companies brought money back to the U.S. While companies lobbied for it, saying they would invest and create jobs, almost none of that money came back to incremental investment and jobs. Approximately $0.90 out of each $1 brought back was spent on buybacks and dividends. Companies are not currently financially constrained. If there were investment opportunities, companies would have taken advantage of them already. Repatriation could have implications for the U.S. dollar (USD) if those dollars were held in non-USD-denominated assets, which is not the case. Changes in monetary policy could have bigger effects on the foreign exchange than this repatriation bill. If approximately $2.5 trillion is back in the U.S. financial system, where is it coming from and what are the implications for those institutions? Most of the money is held in European Union institutions, and some problems could be created if those institutions are not well capitalized.
  • Trade deficit. Look for a possible reduction in the trade deficit, not because of changes in production patterns (in other words, companies will not be moving plants back to the U.S.), but because of changes in how companies report foreign transactions like transfer pricing, intercompany lending, and industry profits abroad. These accounting maneuvers could be reduced, shrinking the trade deficit by up to 0.5 percent.
  • Monetary policy. Given that the U.S. economy is close to full employment, there is concern that higher economic growth could cause inflation to rise at a faster rate than predicted. This could lead to tighter monetary policy, speeding up the pace of rate hikes. Historically, the pace of rate hikes has been very slow. It might accelerate a bit, but we will not push it to an unprecedented pace. This might give the Fed confidence to continue normalizing rates.
  • Fiscal deficit and debt. Estimates show they will rise. When should we start to worry? A while ago, more than a 3 percent deficit as a percentage of gross domestic product (GDP) would have worried people; and for debt, 60 percent of GDP. These thresholds have been thrown out the window. There is much less concern about fiscal deficits now than in the past, and that should worry us because it will have an impact on the future.
  • Productivity growth. It’s hard to know if the tax bill will lead to higher productivity growth. If it does, we will be less worried about fiscal trajectory because we will be generating more income and tax revenue.
The tax bill is an accomplishment but not as positive as has been suggested as it will not bring the U.S. growth to sustainable levels (4 percent). Some argue that tax reform is needed now more than ever to fund the government.​
Presentation countsPresentation countsGary MalerMaler
2018-01-10T06:00:00ZCenter News


Exceptional research and exquisite dining share some common elements. A memorable dining experience includes excellent cuisine. It also features notable presentation. At the Real Estate Center, our quality research is enhanced by the way we present the results.

The Center's ​​most recent survey of Tierra Grande readers revealed that 72 percent of readers prefer to receive the magazine in printed, hardcopy format versus the electronic digital version we offer online. The results are not surprising given the demographics of our readers and the pervasive fact that to reach all stakeholders and audiences, an organization like ours has to use all available communication media.

It's obvious from reader comments that many appreciate the effort we put into quality packaging research results. One survey respondent said, “I enjoy your magazine. I'm proud to share it with friends and clients when I find an article I think they would be interested in. The high-quality finish, great topics, and awesome photography help make​ the real estate profession look top-notch."

Increasingly, we at the Center are relying upon social media in addition to conventional print and digital or online outlets to disseminate the results of research.

While we explore new communications pathways, our commitment to research quality remains unchanged. The breadth and caliber of the data and research conducted by Center economists is well known. However, equally important and impressive is the record of accomplishment of the Center's editors and communications team. Since 1979, the Real Estate Center has received more than 200 local, regional, national, and international awards for communications expertise. Many of those awards were from the International Association of Business Communicators, including 32 Silver Quills and three Gold Quills, IABC's highest award.

As the Center's audience transforms over time to those younger in age, whatever the prevailing social media platforms are at the time will likely lead the way in disseminating information. We will be ready and able to respond when this happens.

Check out our latest issue of Tierra Grande. For more on the Real Estate Center's recent accomplishments, see our annual report.​

Expanding our reach in 2018Expanding our reach in 2018Bryan PopePope
2018-01-04T06:00:00ZCenter News

​​​​​​This afternoon we're doing some pre-production work to get ready for next week's first official Real Estate Center webinar. I say "official" because we actually did a test run a couple of months ago. It was a valuable learning experience. For example, we learned that muting the audio before the webinar begins is never a bad idea.​

Today, I get to play the host in our pre-recorded introduction. For me, this meant remembering to toss a sports coat​ in the car before leaving home today and making sure I looked reasonably presentable.

What this webinar means for you, though, is much bigger.

​​​​Our research economists are constantly in high demand for speaking engagements throughout the state and occasionally outside of Texas. Obviously, that's a lot of ground to cover. Last year, they logged a total of almost 70 speeches, from Lubbock to El Paso to Corpus Christi, and even as far away as Berkeley, California.​​

They spoke to numerous Realtor associations and at luncheons sponsored by land broker groups and mortgage groups, among others. Still, their reach was limited, mostly because of time.

​​With webinars time becomes less of an issue, and our researchers have the potential to increase their reach exponentially​. Webinar technology enables them to present their research findings to anyone anywhere at any time.

From a desktop computer, a viewer can watch a speech in real time, easily submit questions, and participate in polls. The online experience is practically as interactive as an on-site speech. Better still, each webinar will be posted on our YouTube page for anyone to view and share later.

This is new and exciting territory for us at the Center, and just another step in our efforts to help Texans make better real estate decisions.

​Stay tuned for more details about our webinars.


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